Nationwide published an interesting article that examines why FHA has been so poular with first time home buyers over the last eighty years. Since the housing market crashed in 2006, you could make the argument that FHA is the only game in town. But as FHA picked up the slack for subprime lending that went the way of the dodo bird, the Federal Housing Administration has seen their pile of reserves get depleted as foreclosures and delinquencies have soared in the Great Recession. The fact is that in 2011 it is not as easy to find a bad credit house loan as it was in 2005. Times have changed but even the FHA has tightened their mortgage guidelines for new home buyers. Borrowers must document their income and if a borrower has bad credit, they must be able to demonstrate serious compensating factors that would justify a FHA lender approving the government mortgage.
1. Low down-payment requirements making buying a home realistic for many consumers.
2. The FHA mortgage rate is fixed with term options of 15 or 30-year terms.
3. FHA does not hit the borrower with a costly penalty to pay off early when a person refinances or sells their home
Read Nationwide’s recent government financing tips article > FHA Loans for First Time Home Buyers.
Getting approved for a first time homebuyer with FHA is not as complicated as many believe. If you are a first time homebuyer looking for a house, then there is a good chance that you don’t quite have the capital needed to put a down payment on your prospective home. Fortunately, the Federal Housing Administration can assist homebuyers with loans designed to help them afford everything from down payments to mortgages. Buying a house is the biggest purchase most people will make in their lives, and here we’ll go over how first time homebuyer loans from FHA approved lenders can help you afford the home you want.
FHA loans for first time homebuyers are designed to help you make an initial down payment, and to help those who do not qualify for PMI (private mortgage insurance). The FHA does not personally give out these loans. Instead, loans are given through FHA approved lenders. A mortgage insurance premium, or MIP, is paid equal to a percentage of the loan amount at closing. This amount is financed to the lender and paid to the FHA on behalf of the person borrowing the funds. Depending on the ratio of loan to value, there may be monthly premiums to pay as well.
FHA first time homebuyer loans are a popular way to buy a home, because they only require a small down-payment and FHA rates are very low. Even though FHA charges for mortgage insurance, homebuyers actually save money, because of the equity they earn from the time they finance with FHA to the time they would have been able to save for the larger down-payment needed for a traditional home loan. If you are currently paying rent or otherwise want to buy a home quickly, but don’t have the starting capital to do so, then getting a loan through an approved FHA lender can be a good option. Bear in mind that because the FHA does not actually give out the loans, it is important to shop around a little before committing to a loan. Taking a look at different lenders and mortgage brokers who work through the FHA can provide you with an idea of what interest rates, terms and conditions, and premiums are better for you. Because each individual lender has unique terms for loans, comparing different lenders is important.
While considering FHA mortgage programs for first time homebuyers, keep in mind that section 251 insures mortgage rate refinancing and home purchases that have interest rates which increase or decrease over time. This enables you, as a homebuyer, to purchase or refinance your home at a lower interest rate at another time. The FHA offers additional services such as hybrid adjustable rates and down payment grants for first time homebuyers as well.
Reuters reported that FHA mortgage rates have fallen to their annual low and this has spurred increased FHA loan activity for first time homebuyers and homeowners who were unable to refinance in 2010. Most finance analysts anticipate that interest rates will rise in 2011, so many U.S. consumers are rushing to lock in while FHA rates are still low and affordable. Borrowers who already have a FHA mortgage have the luxury of qualifying for the acclaimed FHA streamline refinance that enable FHA customers to get a lower rate loan quickly and cost effectively.
- Finance a New Home with Only 3.5% Down
- FHA Mortgage Rates Available at 4.625%
- No Pre-Payment Penalty with FHA Refinancing
- Consolidate Debt and Lock into a Low FHA Rate
There has been a lot of talk about FHA home loan programs in recent months. It has been no secret that HUD has tightened FHA guidelines in an effort to stem foreclosures and FHA loan defaults nationwide. The Federal Housing Administration already tightened the FHA streamline program so FHA customers can no longer finance closing cost with the streamline refinance loan. Many of the FHA borrowers with good credit have been able to find FHA lenders offering no cost FHA streamline refinance offers. This is the situation in which lenders are paying streamline closing costs in an effort to win the borrower’s business. In most cases no cost streamline loans are approved for borrowers that have a high credit scores and low debt to income ratios.
With FHA rates still be recorded at all-time lows it’s hard to understand why low fixed mortgage payments are not enough of a motivation for first time homebuyers. Yet sluggish reports continue to be reported weekly with low FHA purchase loan activity. The housing sector continues to wait to see if the home buying market can rebound since the expiration of the first-time homebuyer tax credit. The FHA has remained aggressive with the FHA loan guidelines as borrowers still only need to come up with 3.5% of the down-payment.
The FHA has promised to lower allowable seller concessions (the percentage sellers can take from the sales price of a home to fund closing costs). FHA will reduce seller concessions from 6% to 3%. According to an announcement in January, the current level of 6% exposes the FHA to excess risk by creating incentives for appraisers to increase the value of these homes. The change will take place in “early summer,” according to the FHA, but a spokesperson said no specific date has been set. The FHA closing costs include fees for origination, attorneys, appraisal and inspections, title search, title insurance, credit reports, and more. FHA down payment assistance is not included as a closing cost.
A frequent question from loan officers and mortgage brokers is in regards to the longevity of the FHA mortgage product. I received an email just yesterday from a FHA lender asking me the following, “Do you believe that HUD will pull the FHA loan programs for borrowers looking to refinance their home?” Since the subprime crash of 2006, there are still thousands of FHA mortgage brokers who rely heavily on FHA home refinancing. I wanted to address this in this article, because I believe that FHA lending is in jeopardy. FHA loan defaults have been climbing like the rest of the mortgage industry. FHA is a government home loan program and our government is in serious debt. The US government owns nearly 97% of all mortgage securities, so if the homes continue to be foreclosed upon because borrowers are not making their monthly loan payments, then it is safe to say that yes the future of FHA financing is cloudy at best.
Let’s take a look at the FHA loan programs at risk.
FHA 203B – This FHA loan program enables borrowers to get cash out up to 85%. FHA reduced it 10% from 95% cash out refinancing last year. It will be interesting to see if the 10% reduction helped reduce FHA loan defaults for borrowers who took cash out when they refinanced their home.
FHA Streamline – This legendary refinance loan is only for existing FHA borrowers seeking a rate and term refinance. HUD tightened the FHA guidelines by not allowing borrowers to finance the lender closing costs. FHA streamlines do not allow cash out and this new rule has significantly reduced the number of FHA streamline refinances in 2010. My guess is that the streamline program will survive if FHA survives.
FHA Home Loans – FHA goes hand in hand with first time home buying loans so it’s hard to imagine FHA would eliminate their flagship mortgage product, but if FHA loan defaults continue anything is possible. In 2009 FHA loan reserves dipped to dangerously low levels, so funding the FHA program must continue to pass through Congress. Last year FHA increased the down-payment requirements from 3% to 3.5%. I would anticipate that this will go to 5% sooner rather than later.
To HUD’s credit, FHA loan requirements for FHA lenders have increased dramatically. These changes were made to further solidify lending and weed out the shady or uncommitted lenders. As mentioned earlier HUD also mandated significant changes to FHA guidelines. Down-payment, home equity and cash out requirements were all tightened in 2009 and 2010. It is my contention that the FHA loan product will survive, but I believe we the tightening of guidelines is far from over.
Most first time home buyers do not want to come up with a 20% down-payment. FHA continues to provide low down-payment home mortgages that only require a 3.5% down payment. According to 2010 FHA guidelines, first time home buyers and experienced home buyers a like can finance a home up to 97.5% loan to value. If you want to buy a home without coming out of pocket for lender fees, FHA guidelines allow lender paid closing costs. FHA lenders can pay for borrower closing costs but the FHA rates will be slightly higher as the closing costs are factored in. In addition, FHA also allows gift money for FHA home loan transactions. This means that borrowers can utilize money from friends or family as the source of the down-payment.
Currently FHA does not offer a no money down mortgage option. In fact there is not any 100% home loans left in today’s market, with the exception of the VA home loan. Of course this mortgage is only offered to active military and qualified veterans. Besides these military mortgages, FHA offers the closest thing to zero down home financing with a 97.5% home loan.
The FHA Home Loan Company is an FHA approved lenders that offers the full suite of FHA loan programs to borrowers in all 50 states. Choose from FHA refinance, FHA streamline and FHA home purchase loan options.
FHA announced new changes to FHA loan guidelines in an effort to improve its depleted cash reserves. A few days ago, HUD announced tighter FHA guidelines with multiple changes to FHA underwriting. A recent article revealed that FHA requirements may actually penalize borrowers with poor credit. The FHA Mortgage Lending Blog believes that the Federal Housing Administration will expand mortgage refinance guidelines later this year.
FHA will enable borrowers to continue financing the upfront MIP. The agency also will pursue legislative authority to allow flexibility to bring the annual premium, which borrowers pay on a monthly basis, higher. Also, seller concessions will be reduced to 3% from 6%. Frank Black, who managed a Wells Fargo branch in California said, “After reviewing the changes to the FHA requirements, I believe FHA lenders will agree that the new rules make sense and are needed to keep the government financing alive. A few years ago, many brokers and lenders took advantage of FHA underwriting by pushing the envelope with risky home loans.”
Visit the FHA Mortgage Lending Blog and read the original article > FHA Mortgage Guidelines 10% Down for Low FICOs.
Don’t categorize FHA home loans in the subprime lending section. The credit score averages for FHA loans suggest just the opposite. HUD released new credit score data figures indicating that the average FHA customer has a credit score of 670. HUD clearly releases the credit score information because it wants to show Wall Street and the mortgage insurance companies that thetypical borrowers for FHA mortgage loans is qualified for home financing. FHA loans still have no credit score minimums.
According to HUD, FHA guidelines still “do not have minimum credit score requirements.” However HUD does stipulate that past credit history is considered when underwriting FHA home loans. FHA guidelines are based on the borrower’s ability and willingness to repay the mortgage loan. “FHA lenders are empowered to make a credit determination based on the merits of each borrower.” FHA lenders have the ability to disregard low credit scores if the borrower demonstrates significant compensating factors that outweigh the bad credit. Do wholesale FHA lenders like B of A, Wells Fargo, Countrywide, Chase or SunTrust ignore credit scores and extend no credit requirements to brokers and loan officers? NO –That is the myth…HUD does not have minimum credit score requirements but most FHA lenders have implemented their own credit score minimums in an effort to mitigate risks and reduce default ratios. In most cases, if a borrower has a FICO score below 500 than the FHA underwriter typically requests an additional 10% of home equity or for a down-payment to show the applicant’s compensating factors.
o Credit Score Average for FHA Loans is 670
o Average Credit Score for Home Buying is 695
o Credit Score Average for FHA Refinancing is 662
An industry group lowered their forecast for 2009 home loan originations by more than 25% as higher FHA mortgage rates stifle mortgage refinancing activity. The Mortgage Bankers Association estimates that lenders will make $2.03 trillion in new home loans this year, down by more than $700 billion from its forecast in March. The Washington-based group attributed $84 billion to reduce mortgage lending on home purchases. The rest of the decline would be from fewer FHA refinance loans and “very low” volumes on an affordability loan program overseen by mortgage agencies FHA, Fannie Mae and Freddie Mac, MBA said in a statement.
FHA mortgage rates have risen from record lows since the MBA’s prior forecast as have Treasury yields, which spiked amid a flood of debt issuance needed to fund federal rescue programs.
In March, the MBA boosted its forecast of mortgage originations by more than $800 billion but reversed most of that expected increase with Monday’s revision. Average 30-year loan rates have slipped from recent peaks but at 5.38 % last week remain well above the record low 4.78 % set in April, Freddie Mac reported on Thursday. The higher mortgage rates have quelled home refinancing demand. The MBA’s index of mortgage refinancing applications in the week ended June 5 sank to 2,605.7 after hovering between about 5,100 and 6,800 from the March 20 week through the end of April.
Estimates of home loans moving through the Home Affordable Refinance Program, using Fannie and Freddie, have also fallen short. According to Jay Brinkmann, MBA’s chief economist, “While generally accepted estimates were that around 1.5 to 2 million borrowers might avail themselves of this FHA loan program, with many more potentially eligible, to date only about 13,000 loans have been completed according to press reports.”
Though the FHA home loans created under this program should increase, volume is unlikely to come near forecasts, he said. FHA home purchase loans are also expected to be less than expected in March. Falling prices mean lower loan sizes, and homes bought in foreclosure and by investors are often done for cash, the trade group said.
The MBA expects total existing home sales in 2009 to drop 1.2 % from last year to 4.8 million units. New home sales will slump about 27 % to 352,000 units, the group said.”Median home prices for new and existing homes will likely continue to fall, dropping by about 10 % from 2008 levels, but leveling off in 2010 as the economy improves,” Brinkmann said.
FHA loans have significantly aided homeowners, new home buyers and lending professionals during the mortgage crisis. FHA loans continue to provide affordable home financing and fixed rate refinancing with little equity and minimal down-payments required.
Nick Timiraos recently wrote an article outlining how U.S. housing officials are in the process of planning that would essentially allow some first time home buyers to purchase a house by paying little money upfront. With this FHA loan, 1st time buyers could benefit from an $8,000 income tax credit towards their down payment on loans backed by the Federal Housing Administration. The idea is to enables new home buyers to “monetize” the tax credit. Right now, home buyers must wait until they file their taxes to receive the credit.
The FHA is finalizing a program that would allow approved FHA lenders, non-profits, and state and local governments to fund short-term loans that could be used as down payments to be repaid once the borrower received the tax credit. Once they received their tax credit, they would pay off the short-term loan and put equity into their home. The FHA requires a minimum 3.5% down payment on loans backed by the agency, which means that buyers could put little or nothing down on homes up to $230,000. “It is close to having nothing down,” says Thomas Lawler, an independent housing economist.
The proposal, hailed by home builders and Realtors, is drawing some comparisons to the no money down programs that the FHA has worked to shut down. Congress ended a program last year that allowed home sellers to fund down payments to home buyers through nonprofit groups, and the FHA has blamed that program for an outsized share of loan defaults. Under that mortgage program, nonprofit groups would “gift” the 3% minimum down payment to a home buyer, often funded by the seller of the property. Buyers would move into the home without paying any of their own money for the down payment. “We remain concerned that the lenient underwriting standards, low down-payment requirements and now the ability of FHA borrowers to purchase a home without putting any of their own equity into the purchase is creating a tremendous risk for the program and taxpayers in the future.”
Several states, including Pennsylvania and New Mexico, had already instituted similar programs. Housing Secretary Shaun Donovan outlined the plan Tuesday during a speech to the National Association of Realtors. “We think the policy is a real win for everyone,” he said. Congress approved the tax credit in February’s stimulus bill, which provides up to $8,000 for first-time home buyers on a new or existing home. The tax credit expires December 1st.
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